China and India ramping up fertilizer subsidies

In the World Trade Organization, a developing nation like China has certain rights that a developed country like the United States does not have. Officially, they have a longer transitional period before they have to abide by WTO agreements. But in reality, they get a permanent free ride on their own subsidy programs and a blind eye to their human rights abuses.

Speaking of abuses, what about those disgraceful forced evictions of citizens to make room for China's Olympic Village in Beijing. There was little or no compensation for the people who had to move. It should have caused a much bigger flap than it did.

And how is it that no one appears the least bit concerned that China, despite its lowly economic status, managed to scrape together $50 billion to host the 2008 Olympics, more than China will spend this year on education or public health.

But let me tell you, this is rivaled only by what China and its neighbor, India are dishing out in fertilizer subsidies these days. The information comes from Erin FitzPatrick, an industry analyst from Rabobank.

In 2007, China used 53 million tons of nitrogen, potash and phosphate. The Chinese government sees fertilizer as a key driver for increased crop supply and plans to continue support of an initiative in which fertilizer manufacturers receive subsidies for the feedstock, electricity and transport of fertilizer.

Farmers also receive direct subsidies for grain crops and are exempt from agricultural taxes. There is also an expansion of rural lending supporting their purchase of fertilizers and other farm inputs.

China has also implemented very strict export tariffs to prevent nutrients from moving out of their country. Tariffs on nitrogen, potash and phosphate are well over 100 percent.

India, the No. 2 user of fertilizer in the world and a developing country, has implemented a pricing scheme which subsidizes farmers indirectly through fertilizer producers. The Indian government is projected to contribute $9.2 billion to the program in 2007-08 and a whopping $22.5 billion in 2008-09.

In 2006-07, subsidies to Indian fertilizer manufacturers reduced the price of urea to Indian farmers by 57 percent, potash, by 60 percent, and phosphate, by 41 percent. Essentially, the prices of these fertilizers are capped at certain levels to make them affordable to farmers. The government will then pay fertilizer retailers the difference between the international marketplace price and the capped price.

The impact of the subsidies is to shield Chinese and Indian farmers from high fertilizer prices so they can increase production. No doubt increased demand from this will push U.S. fertilizer prices higher.

Frankly, I can't think of a better justification for a strong U.S. farm policy and support program. Today there are two categories of nations in the WTO — developed nations and developing nations. If we keep chipping away from our farm programs bit by bit, there could be a third — sacrificed superpower.

Lastly, let's not get so caught up in the spirit of free trade that we forget about the need for free societies. Governments that don't respect their own people ultimately will not hold a special place in their hearts for trading partners either.